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https://www.wsj.com/articles/SB962410072788858681

Offerings in the Offing

Snapple Redux

By

By Bill Alpert

Updated July 3, 2000 12:01 am ET / Original Sept. 15, 2019 9:27 am ET

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I nvestors might be thirsty for a low-tech growth stock, but will they take a second swig of Snapple? The premium beverage maker's current owner, New York-based Triarc Cos., will find out soon enough, now that it's put Snapple back in Wall Street's cooler case. Last week, Triarc, run by 1980s buyout artists Nelson Peltz and Peter May, filed to sell $100 million of new Snapple shares -- at a price to be determined -- through the checkout aisles of Morgan Stanley & Co., Donaldson Lufkin & Jenrette, ING Barings and Lehman Brothers. Assuming the deal goes through, Triarc then will seek to spin off its remaining Snapple shares in a tax-free transaction.

Like Peltz and May themselves (more about them later), Snapple has a rather juicy past. History buffs will recall that Snapple I -- as we'll call it -- was one of the hottest initial public offerings of the early 1990s. The stock came public at 5 and peaked above 30, before a shift in the company's fortunes cut the price in half and drove Snapple into the less-than-gentle arms of
Quaker Oats
. On Quaker's three-year watch, the company's troubles compounded; case sales dropped 30%, and Snapple's distributors openly warred with Quaker. Having acquired Snapple for a lofty $1.7 billion, Quaker ultimately unloaded it to Triarc in 1997, for a mere $309 million.

Under current CEO Michael Weinstein, however, Snapple has recovered smartly from the Quaker debacle. Case sales perked up 8% in 1998, 7% in '99 and 10% in the quarter ended April 2. "Mike Weinstein is a primo operator," says Tom Pirko, president of Bevmark, a beverage industry consulting firm in Santa Barbara, California. "Mike has reestablished the confidence of the distribution system."

In many respects, the proposed stock offering -- let's call it Snapple II -- is well-timed. For the past five years, notes Beverage Digest, an industry publication, sales of alternative beverages such as Snapple and rival Arizona have grown at a 10% compounded annual rate, compared with 3% for carbonated soft drinks.

Triarc has planned a restructuring contingent on the Snapple stock offering. The newly public Snapple Beverage Group -- to be listed on the New York Stock Exchange -- will include the Snapple and Mistic brands of "premium" iced teas and fruit drinks, as well as Royal Crown, which sells concentrates for carbonated soft drinks. To make the offering even more appetizing, Triarc will retain its slower-growing Arby restaurant franchise, but give Snapple all of Arby's $11 million in existing cash, plus another $178 million that Arby intends to borrow.

But the deal might not pass the taste test in at least one regard. After the proposed IPO, Snapple will remain burdened by more than $475 million in debt, which swamps the company's $75 million in shareholder equity. There's good news, though. Assuming the restructuring had been in place for the fiscal year ended January 2, 2000, the registration statement says that Snapple's earnings, before interest, taxes and non-cash charges such as amortization, would have been about $100 million -- enough to cover that year's interest expense of $51 million.

A heavy debt burden shouldn't surprise any investor willing to look at a Peltz and May deal, however. In the 1980s, the pair used junk-bond financing to buy Triangle Industries, National Can and American Can -- the original Triarc trio -- before cashing out of the leveraged buyout with more than $800 million. Last year, Peltz, Triarc's chief executive, and May, its president, tried to take Triarc private. But outside investors objected to their price, and the deal eventually was scotched.

Count on Peltz and May to take good care of themselves after a Snapple offering. According to the registration statement, Snapple will pay about $7 million to Triarc this year for "management services."

In this year's first quarter, premium beverage revenues grew by 9% year-over-year, to $141 million, while operating profit more than doubled, to $8 million. But soda concentrate sales slipped another 3%, to $30 million.

Tom Pirko believes Snapple can continue to grow its premium brands, but cautions investors not to expect a sustained surge in sales. The company's strength has been in selling single servings in convenience stores -- the "up and down the street" part of the beverage business. The big bucks in soft drinks, however, flow through the mass merchandisers and supermarkets, where
CocaCola
and
PepsiCo
have almost unassailable control of shelf space. Coke, for its part, is pushing hard to expand the market for its own non-carbonated beverage, Fruitopia, while Pepsi recently brought an entrant in the category. To the extent that Snapple can hold its own against these gorillas, Snapple II is likely to be successful. But Pirko doubts that the stock will become "a low-tech shooting star," like Snapple I.

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